Binary options have only two outcomes: a payoff of a set amount or nothing at all. Buyers and sellers of binary options—which can be bought or sold throughout the life of the contract—will know precisely how much can be made or lost if the positions are held to expiration. Call options pay $100 if the underlying index settles at or above the pre-set strike price at expiration, or nothing at all if the index settles below the strike price. Put options pay $100 if the underlying index settles below the pre-set strike at expiration, or nothing at all if the index settles at or above the strike price.
In addition, because they are exchange-traded, CBOE binary options have clearing guarantees unavailable in over-the-counter markets.These options can be traded in a regular securities brokerage account that is approved for options.
CBOE's binary options have experienced impressive volume early on, reaching as much as 10,000 to 12,000 contracts on some days and averaging 2,500 contracts daily during September. CBOE has seen strong institutional use of these contracts. Based on customer feedback, we fully expect the addition of puts to spur more brokers-dealers to come on-line to handle binaries, thus enabling more individual investors to access these products.
The Designated Primary Market Maker (DPM) for binary options on the S&P 500 Index (ticker symbol BSZ) is Chicago Trading Company; the DPM for binary options on the CBOE Volatility Index (ticker symbol BVZ) is Group One Trading, L.P.
Contract Specifications
Identical for both contracts:
Contracts vary:
*BSZ - Last trading day: Thursday before the third Friday of the expiration month, and the options expire on the Saturday following the third Friday of the expiration month.
*BVZ - Last trading day: Tuesday before the Wednesday that is 30 days prior to the third Friday of the calendar month immediately following the expiring month (e.g., October 21, November 18 and December 16, 2008). The options expire on the Wednesday that is 30 days prior to the third Friday of the calendar month immediately following the expiration month (e.g., October 22, November 19 and December 17, 2008).
*For BSZ, the settlement value of the SPX (or "SET") will be used to determine if the binary option is in, at or out of the money.
*For BVZ, the settlement value of the VIX (or "VRO") will be used to determine if the binary option is in, at or out of the money.
CBOE, the largest options marketplace in the U.S. and the creator of listed options, is regulated by the Securities and Exchange Commission (SEC).For additional information about the CBOE and its products, access the CBOE website at: www.cboe.com.
